Asian Markets Drop as Iran Conflict Raises Energy Prices, Inflation Worries

Stock markets across Asia declined Tuesday following U.S. and Israeli military strikes on Iran, with investors concerned about rising energy costs. Oil prices jumped significantly after Iran threatened to close a major shipping route, complicating Federal Reserve efforts to control inflation.

Financial markets across Asia experienced significant declines Tuesday morning as investors weighed the economic impact of recent U.S. and Israeli military actions against Iran, particularly on energy costs and global economic stability.

The MSCI Asia-Pacific stock index excluding Japan dropped 1%, marking the second consecutive day of losses. South Korean markets led the decline with a 2.5% fall, while Japan’s Nikkei 225 decreased 0.8%. U.S. S&P 500 futures trading indicated a 0.2% decline.

“Economic policy uncertainty was already elevated and now with the Iran conflict, the geopolitical risk is expected to rise too,” said Rupal Agarwal, Asia quant strategist at Bernstein in Singapore. “Last time both spiked was in 2022 during the Russia-Ukraine conflict, which didn’t work well for Asian markets.”

U.S. markets showed mixed results Monday after initial volatility, with the S&P 500 recovering from early losses to finish unchanged and the Nasdaq Composite gaining 0.4% as investors purchased stocks following the Middle Eastern conflict’s expansion into Lebanon.

Tensions escalated Monday when an Iranian Revolutionary Guards official announced the closure of the Strait of Hormuz to shipping traffic, threatening to attack any vessels attempting passage through the crucial waterway.

Energy markets reacted sharply, with Brent crude oil futures initially spiking 13% to $82.37 per barrel – the highest level since January 2025 – before closing 7.1% higher at $78.07. Natural gas prices in Europe and Asia surged approximately 40% Monday.

The dramatic increase in energy costs presents additional challenges for Federal Reserve officials working to maintain price stability, as policymakers already face disagreements about artificial intelligence’s economic effects.

Manufacturing data released Monday revealed steady growth in February, but factory-level pricing reached nearly three-and-a-half-year highs due to tariff impacts, indicating inflation risks existed even before the Iran strikes sent oil prices soaring.

Financial markets now assign a 97.5% likelihood that the Federal Reserve will maintain current interest rates at its March 18 meeting, according to CME Group’s FedWatch analysis. Expectations for a June rate hold, previously under 50%, increased Monday to slightly above even odds.

The dollar index, measuring the currency against six major counterparts, remained near a six-week peak at 98.494 as the Iran situation unsettled markets and renewed the dollar’s safe-haven appeal. Ten-year Treasury yields fell 1.9 basis points to 4.0288%.

Gold prices edged up 0.2% to $5,336.99, while Bitcoin declined slightly by 0.1% to $69,348.85. Ethereum increased 0.3% to $2,050.50.